Government told to use R70bn IMF loan in transparent manner

The IMF wants government to beef-up governance in state owned enterprises.
The IMF wants government to beef-up governance in state owned enterprises.
Image: SAA

The International Monetary Fund (IMF) believes the SA government will use a US$4.3bn (R70bn) loan it was granted in a transparent manner.

That is one of the conditions that were stated in the IMF staff report and media release published on Wednesday after the lender on Monday approved the US$4.3bn (R70bn)  loan to SA.

The IMF also wants the government to be unwavering in rolling out growth-enhancing reforms and improving governance and operations of state-owned entities.

"The authorities’ commitment to transparently monitor and report all use of emergency funds is crucial to ensuring Covid-19-related spending reaches the targeted objectives," said the IMF.

“There is a pressing need to strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation, improving the governance and operations of SOEs and implementing other growth-enhancing structural reforms.

"The Covid-19 crisis heightens the urgency of implementing these efforts to achieve sustainable and inclusive growth. Specific reform commitments at the time of the October Medium-Term Budget Policy Statement will be a critical step to buttress the credibility of the reform efforts and should be followed by steadfast implementation.

Efforts to preserve the central bank’s inflation mandate and proactive bank regulation and supervision, particularly for small banks, will also be important," read the statement.

Geoffrey Okamoto, the first deputy managing director and acting chair, said: “South Africa’s economy has been severely hit by the Covid-19 crisis, reporting the highest number of cases in sub-Saharan Africa.

"A deep economic recession is unfolding as the decline in domestic activity and disruptions in the global supply chain resulting from the Covid-19 shock have added to a pre-existing situation of structural constraints, subdued growth, and deteriorating social outcomes."

“The emergency financing under the RFI will help fill the urgent BOP needs that emerged as a result of the pandemic and thus contain the economic disruption and its regional spillovers," read the statement.

However, the IMF warned that should the infection spread be more severe and be prolonged, "supply and demand would fall further, financial conditions could tighten again, and a deterioration of social conditions may ensue".

It added that if the government failed to achieve consensus to implement the envisaged reform agenda to reverse the economic stagnation of the last decade, this would pose serious threats to debt sustainability, "and generating destabilising effects such as inflation or financial repression".

"In particular, specific and well-defined fiscal consolidation and reform commitments in the October medium-term budget policy statement will be a critical first step to establish the credibility of the reform efforts, followed by steadfast implementation.

The loan, which generated huge public outcry due to suspicions that government leaders would misuse the IMF money, was approved on the day presidency spokesperson Khusela Diko went on leave of absence amid claims her husband scored from state tenders.

Royal Bhaca Projects, a company owned by her husband, Amabaca King Madzikazi II Thandisizwe, was reportedly awarded a multi-million rand tender to supply personal protective equipment to the Gauteng department of health.

The reports, by the Sunday Independent, suggested that Diko was a close friend of health MEC Bandile Masuku’s wife Loyiso whose department had awarded the tender. Diko and Masuku are said to have been bridesmaids at each other’s weddings. Diko said her request to take leave of absence pending investigation into the R125m tender had been accepted. There are also calls for Masuku to step aside.

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